Amid the lacklustre performance of the country’s economy, Vice President Yemi Osinbajo told a select group of investors at the recently concluded World Economic Forum that the government would create six Special Economic Zones to spur economic development in the country. He said the SEZs would be a collaborative effort of both the government and the private sector, and that the two partners would bell the cart with investment in the textile and garment industry.
The newly introduced economic development fad called SEZ, has, really, grown rapidly across the world within the last three decades. In 1986, there were 176 SEZs in 47 countries, and by 2006, there were 3,500 of such zones in 130 countries. In spite of this huge growth in the number of Special Economic Zones around the world, many of them have failed to meet their objectives. However, quite a good number of them have been able to significantly contribute to the inflow of Foreign Direct Investment into their countries; contribute to exports, provide employment opportunities, and play crucial roles in the structural transformation and industrialisation of their countries. Coming far behind many other Special Economic Zones, both in Africa and across the world, the new initiative is a welcome development, as it will contribute to employment generation and the economic growth of the country.
However, it must be noted that except for the Special Economic Zones in Mauritius, Kenya, Madagascar and Lesotho, most Special Economic Zones in Africa have generally underperformed. Orthodox economic perspectives view Special Economic Zones as “second best”, preferring instead, economy wide liberalisation of trade and investment
However, it must be noted that except for the Special Economic Zones in Mauritius, Kenya, Madagascar and Lesotho, most Special Economic Zones in Africa have generally underperformed. Orthodox economic perspectives view Special Economic Zones as “second best”, preferring instead, economy wide liberalisation of trade and investment. Therefore, against the general poor performance of Special Economic Zones in Africa, the government must accept that there are huge tasks ahead to make such Special Economic Zones succeed in the country.
According to the Minister of Industry, Trade and Investment, Dr. Okey Enelamah, the Six Special Economic Zones will be set up throughout the country to help overcome infrastructure disadvantages faced by local manufacturers and promote cluster effects gained by locating similar manufacturing industries together. Availability of good infrastructure is a critical success factor for the initiative to succeed. The government must ensure good road within and around the Special Economic Zones. Stable and regular electric power supply must also be available to make the zones
succeed.
It is a good thing that some of the financial partners of the new government initiative, particularly Afrexim Bank and Exim Bank of China, have committed $1billion to the project. If anything, it is a measure of their strong support for the initiative and confidence in its potential success.
Nigeria is a major cotton growing country. Locally grown cotton will, therefore, be the raw material for the textile and garment manufacturing companies that will be located in the textile and garment Special Economic Zone. Also, Nigeria’s huge population of about 190 million and the ECOWAS sub-region will be ready markets for the SEZs. These are apart from the export markets, overseas.
The government must also ensure a good mix of local and foreign investors in the six zones. Both types of investors would be able to learn from each other and cooperate in many areas to push their manufactured products to the market. In fact, evidence from successful SEZs in other countries has shown a strong role for local investors in the medium term. In Malaysia, Korea, Mauritius, and China, many of such zones that started with foreign investors are now dominated by local investors. In many cases, the investments by local investors actually boosted the confidence of foreign investors to bring their foreign exchange and invest in the SEZs.
The government must also note that Special Economic Zones are expensive and risky projects; the margin for error is small. Yet, they can play critical roles in fast-tracking the diversification of the economy.
Consequently, the government must provide the six special zones with the enabling environment that will enable them thrive and blossom. In addition, companies in the zones must be given tax holidays and rebates, as well as the Central Bank of Nigeria’s concessionary single digit loans by their banks. This is in addition to stable and regular power supply, water and good roads within and around the zones. The Special Economic Zones must also have good access to major local and oversea markets for their products to enjoy good patronage.
Apart from putting in place appropriate measures to discourage smuggling and importation of cheap textile and garments, including second-hand clothing into the country, the government must also ensure security of life and property. If the political and economic environments are not stable, foreign investors will not come, no matter the incentives put in place in the country.
Against the backdrop of the poor performance of many Special Economic Zones, particularly in Africa, the Federal Government must go the extra mile in ensuring the success of the initiative. Implementation is key to the success of the new initiative and the government must do all that is possible to ensure that such a good initiative does not fail. That way, more financial partners will support the initiative, so that the six zones can be up and running in
good time.
